Enforcing fire safety in the catering industry : an economic analysis

Introduction 1 1.1 Enforcement deficits 1 1.2 Main question 3 1.2.1 The state of the art in the literature 4 1.2.2 The contribution of the theoretical part 6 1.2.3 The contribution of the empirical part 7 1.2.4 The economic perspective 7 1.3 Methodology 9 1.3.1 The analysis of the economic literature 9 1.3.2 Methodology of the empirical part 10 1.4 Definitions and concepts 11 1.4.1 Enforcement as social welfare maximization 11 1.4.2 Rationality 12 1.4.3 The case of fire safety in the catering industry 14 1.5 Plan of this thesis 16 1.5.1 The structure of the theoretical part 16 1.5.2 The structure of the empirical analysis 19 Part I Theory 21 2 The social problem and the optimal solution: Why enforcement is needed 23 2.1 The accident problem 23 2.1.1 The utility of victims and injurers 23 2.1.2 The socially optimal solution to the accident problem 25 2.2 Voluntary compliance will be insufficient 28 2.2.1 The proprietor’s personal interest 29 2.2.2 Social or moral concerns 30 2.2.3 The problem of transaction costs and limited information of visitors 30 2.3 Liability for damages 31 2.3.1 The incentive to take precautions and standardsetting 32 2.3.2 Risk aversion and insurance 34 2.3.3 The optimal magnitude of liability and nonmonetary damages 36 2.3.4 Limited assets 38 2.3.5 Uncertainty about expected harm 39 2.3.6 Vicarious liability 40 2.3.7 Litigation 422.3.8 Conclusion on the efficiency and effectiveness of liability 46 2.4 Conclusion: The need for public enforcement 46 3 Introduction to public law enforcement: detection and sanctions 49 3.1 The model of public enforcement 49 3.1.1 The description of the enforcement policy 49 3.1.2 The trade-off between sanctions and detection 51 3.1.3 Risk attitude and the costs of imprisonment 51 3.1.4 Subjective and objective sanctioning risk 52 3.1.5 Detection technology 54 3.2 Basic efficient enforcement policy 54 3.2.1 Certain enforcement 55 3.2.2 Monitoring 58 3.2.3 Investigation 64 3.2.4 Joint use of monitoring and investigation 67 3.3 Interactions between the crime rate and enforcement 68 3.4 The value of self-reporting 69 3.5 Conclusion: Extreme sanctions? 71 4 Continuing compliance and enduring enforcement – time constraints 75 4.1 Dealing with repeat offenses – increasing sanctions? 75 4.1.1 The optimality of non-increasing penalties 75 4.1.2 Increasing sanctions: offense as signal 76 4.1.3 Non-monetary sanctions and the benefits of incapacitation 79 4.1.4 Increasing apprehension 80 4.2 Repair sanctions and the time spent in violation 81 4.2.1 Duration of violation and ‘repair sanctions’ 81 4.2.2 Remediation and self-reporting 83 4.3 Conclusion 86 5 Partial compliance and targeting enforcement – resource constraints 87 5.1 Partial compliance 87 5.2 Targeting enforcement 89 5.3 State-dependent enforcement 91 5.3.1 The benefits of a state-dependent enforcement policy 91 5.3.2 An example of state-dependent enforcement 93 5.3.3 Improvement and discussion of the statedependent enforcement policy 96 5.3.4 Warnings 101 5.4 Conclusion 1036 Flexible compliance and cooperative enforcement – information constraints 105 6.1 Uncertainty about standards – flexible compliance 105 6.1.1 Ignorance and mistake, and an information exchanging enforcement policy 105 6.1.2 Incomplete law, sources of uncertainty and cooperative enforcement 108 6.2 Accuracy of enforcement technologies 111 6.2.1 Court’s mistakes and the problem of the conviction of innocent firms 111 6.2.2 Firms’ investment in escaping penalties 113 6.2.3 Firms’ investment in non-detection 115 6.2.4 Public investment in detection 115 6.3 Conclusion 116 7 Voluntary compliance and persuading enforcement – informal constraints 117 7.1 Informal sanctions: social and moral control 117 7.2 The deterrent effect of informal sanctions 118 7.3 Formal and informal sanctions as reinforcing instruments 119 7.4 Crowding out of intrinsic motivation 120 7.5 Conclusions on informal sanctions 122 8 Economic explanations of compliance strategies 123 8.1 Compliance strategies: what is it all about? 123 8.2 Compliance strategies from an economic perspective 126 8.2.1 Why and when deterrence may fail 126 8.2.2 The design of compliance strategies 129 8.2.3 An important remark on the desirability of compliance strategies 131 8.3 Explaining the scope for compliance strategies 133 8.4 Concluding public law enforcement: Economics and other social sciences 134 8.4.1 Some comments on the debate concerning enforcement strategies 135 8.4.2 The appropriate distinction between compliance and deterrence strategies 137 8.4.3 Conclusion: Integrating different views 138 9 Discretion, credibility and objectives of the enforcement authority 141 9.1 Credibility and commitment 141 9.1.1 The problem of commitment when the costs and benefits of non-compliance change 141 9.1.2 Commitment when enforcement is costly 1439.2 Enforcement authorities’ objectives 144 9.2.1 The objectives of law enforcers 145 9.2.2 The financing of enforcement authorities 146 9.3 The role of courts in controlling law enforcers 147 9.3.1 The optimal level of discretion 148 9.3.2 The relationship between courts and regulators 151 9.4 Conclusion 154 10 The optimal structure of law enforcement 155 10.1 Analyzing and comparing enforcement methods 155 10.1.1 Stage of intervention: prevention, act-based or harm-based sanctions? 155 10.1.2 The optimal method of public law enforcement: criminal or administrative 158 10.1.3 Private or public enforcement? 161 10.2 Private and public enforcement 162 10.2.1 Criminal law enforcement as a supplement 162 10.2.2 The simultaneous use of ex-ante regulation and ex-post liability 163 10.2.3 Liability and prevention 167 10.3 Deterrence versus compliance strategies 169 10.3.1 The appropriate distinction 169 10.3.2 Deterrence 169 10.3.3 Optimal strategies for other objectives 171 10.4 Effective and efficient enforcement 173 10.4.1 Conditions for the enforcement methods 173 10.4.2 The case of fire safety in horeca establishments 175 Part II Empirical analysis 179 11 Fire safety regulation in horeca establishments and policy developments 181 11.1 The horeca sector 181 11.1.1 A general description of horeca establishments 181 11.1.2 Competition and ownership 183 11.1.3 Regulation 184 11.2 Fire safety regulation 185 11.2.1 Fire safety prescriptions 185 11.2.2 Short history of enforcement and the Volendam disaster 188 11.3 The enforcement problems and actions of recent years 191 11.3.1 The ‘enforcement deficit’ 191 11.3.2 The response 192 11.3.3 Evaluation of these policies 193 11.3.4 The analysis in the next chapters 19412 Analyzing current municipal enforcement policies: Which strategy is effective? 197 12.1 Data collection for municipalities’ enforcement policies 197 12.1.1 The relevant factors and the required information 198 12.1.2 Sources of information 198 12.1.3 Response and available information 199 12.1.4 Interviews and interpretation of the results 200 12.2 Description of current municipal enforcement policies 200 12.3 A Harrington Paradox? 207 12.3.1 Low inspection rates? 207 12.3.2 The threat of sanctions 208 12.3.3 The level of compliance 209 12.3.4 A Harrington Paradox? 210 12.4 Is a compliance strategy effective? The defenses analyzed 211 12.4.1 Information and advice – non-compliance by ignorance 212 12.4.2 Remediation – non-compliance by accident 214 12.4.3 Persuasion – voluntary compliance 215 12.4.4 Informal enforcement – tolerated noncompliance 217 12.4.5 Cooperative enforcement – flexible compliance 219 12.4.6 Supplementary enforcement – compliance as personal responsibility 222 12.4.7 Conclusion 224 12.5 The legal environment – why does deterrence fail? 224 12.5.1 Legal constraints on the fire safety department 224 12.5.2 Explaining the level of discretion and private interests 227 12.6 Policy-making and enforcement deficits 231 12.6.1 Problems with policy plans 231 12.6.2 Organization – Separating granting and inspecting licenses 232 12.6.3 Licenses 233 12.6.4 Conclusion: action program 234 12.7 Conclusion 234 12.7.1 Deterrence 235 12.7.2 Optimal strategies for the other objectives 237 12.7.3 Conclusion 238 13 Cost-benefit analysis of enforcement following the Volendam disaster 241 13.1 The role of a cost-benefit analysis 241 13.2 Costs and benefits of intensified enforcement policies 24213.2.1 Government costs from intensified enforcement 243 13.2.2 Compliance costs for horeca proprietors 245 13.2.3 Fire damage 246 13.3 The balance of costs and benefits 248 13.3.1 A general picture of required effectivity 248 13.3.2 Costs and benefits of alternatives 251 13.3.3 The potential savings of the Use Decree 252 13.4 Comments and interpretation 253 13.4.1 Fires as disaster 254 13.4.2 Statistical cost-benefit analysis versus ‘irrational’ emotions 255 13.5 Conclusion from the cost-benefit analysis 256 14 Settlement of liability claims following the Volendam disaster 259 14.1 The facts 259 14.1.1 The Volendam disaster and the first actions 259 14.1.2 The investigating reports 260 14.1.3 The settlement of liability claims and other legal procedures 262 14.2 Overview of payments 264 14.3 Evaluating the Volendam settlement 267 14.3.1 The process 267 14.3.2 Total harm 267 14.3.3 Evaluation of Veerman’s contribution 268 14.3.4 The cocktail of incentives 270 14.3.5 The government payments 271 14.4 Conclusion 273 15 Efficient enforcement in a representative municipality 277 15.1 Description of the case 277 15.1.1 Horeca establishments and the municipality 278 15.1.2 Compliance costs 279 15.1.3 Expected damage 280 15.1.4 The efficient level of compliance 282 15.2 Private law enforcement 284 15.2.1 Enforcing efficient levels of compliance through liability 284 15.2.2 The magnitude of liability 289 15.2.3 Ability to pay damages and insurance 291 15.2.4 Litigation costs and the incentive to file a claim 294 15.2.5 Concluding on private enforcement 297 15.3 Administrative enforcement 297 15.3.1 Administrative enforcement in general 297 15.3.2 Costs of enforcement and level of compliance 29815.3.3 The result under administrative enforcement 300 15.3.4 Concluding on administrative enforcement 301 15.4 Criminal enforcement 302 15.4.1 Conceivable policy: a fine of €250 302 15.4.2 Trading off the probability of inspection and the magnitude of the fine 308 15.4.3 Concluding on criminal law enforcement 312 15.5 Enforcement alternatives compared 313 15.5.1 The optimal enforcement policy 314 15.5.2 The problem of information and act-based enforcement as supplement 315 15.5.3 The problem of wealth and act-based enforcement as supplement 316 15.5.4 Conclusion 317 16 Conclusion 319 16.1 Summary part I: theory 319 16.1.1 The need for public enforcement 320 16.1.2 Private enforcement by liability rules 321 16.1.3 Public law enforcement 322 16.1.4 A compliance or deterrence strategy 325 16.2 Summary part II: empirical analysis 328 16.2.1 Empirical analysis: data and methods 328 16.2.2 Public enforcement between 2001 and 2007 329 16.2.3 Evaluating the settlement of the Volendam disaster 332 16.2.4 Enforcement in a representative municipality 332 16.3 Enforcing fire safety in horeca establishments 334 16.3.1 The efficient enforcement policy 334 16.3.2 Comparing the efficient policy with actual enforcement policies 335 16.3.3 Further remarks on enforcing fire safety 336 16.4 Further research to the enforcement of regulatory crime 337 16.4.1 The economic perspective 338 16.4.2 The optimal enforcement style 338 16.4.3 Remaining questions 339 16.4.4 The importance of data collection 340 Appendix 1 Interviews and interviewees 343 A1.1 Interviews in 13 municipalities 343 A1.1.1 The selection of municipalities 343 A1.1.2 The interviews 345 A1.1.3 List of persons interviewed in 13 municipalities 346 A1.2 List of persons with additional information 349Samenvatting [Summary in Dutch] 351 References 367 Index 379 Curriculum vitae 381